Australian firm enters Uganda’s oil and gas sector

Irene Muloni (R), the Minister of Energy and Mineral Development and Roger Cressey, the CEO Armour Energy display a Memorandum of Understanding certificate after signing the oil exploration licence on Sept. 14. INDEPENDENT/JIMMY SIYA

Kampala, Uganda | RONALD MUSOKE | On Sep 14, the Ugandan government signed a production sharing agreement with the Australian Armour Energy Ltd and issued a petroleum exploration licence, the first under the competitive licensing round for oil and gas unveiled two years ago.

The licence covers the Kanywataba Block, a 344 square kilometres area, on the southern fringes of Lake Albert near the Democratic Republic of Congo.

The block was initially licenced to Total, China’s CNOOC, and Tullow but the three firms, which are now overseeing the development phase of the country’s crude oil discoveries reverted it to the government in 2012 after failing to find oil.

Eng. Irene Muloni, the minister for Energy and Mineral Development said the licence was given to Armour Energy in accordance with Section 58 of the Petroleum (Exploration, Development and Production) Act, 2013.

“This is the legal regime under which I announced the first competitive licensing round during February 2015,” she said during the signing ceremony at the energy ministry’s headquarters at Amber House in Kampala.

She said the sustained low oil prices had played a role in the protracted negotiation. In 2014, the price of crude oil on the international market stood at US112 but it is currently trading at US50 per barrel on the back of high production.

Under the new PSA, Armour will pay royalty (8.5%–21%) based on the gross oil production in barrels per day. The agreement also has provisions for state participation while the cost recovery limit for petroleum has been set at 65%.

Other clauses in the agreement include; a performance (Bank) Guarantee amounting to 50% of the minimum exploration expenditure for the first exploration period ($990,000) and a requirement to train and employ suitably qualified Ugandan citizens.

However, The Independent, has learnt that Armour Energy intends to work in partnership with DGR Global Limited, another Australian oil and gas prospecting firm in the Kanywataba block. This follows an agreement that was signed recently between the two entities.

As such, Armour Energy plans to retain 16.82% while DGR will meet the tenement expenditure and work programme commitments for the first two years and indemnify Armour for these costs but until that transfer is complete, Armour will hold DGR’s 83.18% in trust, according to the Oil and Gas Journal, an international industry publication.

The tentative agreement shows that DGR Global has agreed to spend as much as US$837,000 for a performance guarantee, US$442,000 to complete the grant of the licence and $1.98 million for the first two years of the exploration programme.

Robert Kasande, the acting permanent secretary at the Ministry of Energy and Mineral Development noted that since this was the first competitive licensing round in the country, the ministry undertook a comprehensive process of approval of the blocks for licensing as required by the Petroleum (Exploration, Development and Production) Act, 2013.

This licensing round was based on data availability and “prospectivity” covering six blocks with a total acreage of 2,674 square kilometer in the Albertine Graben.

Kasande said a total of 19 potential bidders responded and picked the request for qualification and out of these, 17 submitted applications for qualification.

The government evaluated the submissions and recommended 16 companies to proceed to the request for proposal stage, a phase which required applicants to carry out a number of activities that included visiting the data room, attending a bidders’ conference and carrying out field visits among others.

“One of the major achievements from the licensing round was the development of a state of the art data room to facilitate the first licensing room,” Kasande said adding, “The data room remains open to the industry to view and purchase data, and will also be used for future licensing rounds.”

In the process, Kasande said the energy ministry generated $2.4 million from the sale of data to bidders that was paid to the Uganda Petroleum Fund. This is in addition to US$316,000 that has been paid as signature bonus, research and training fees and annual acreage rental fees for the first exploration period.

Four bidders from a short list of seven companies that had submitted proposals by the deadline of Feb. 26, 2016 emerged successful and were selected for negotiations. They included; Walter Smith Petroman Limited, Oranto Petroleum Limited, Armour Energy Limited and Niger Delta Petroleum Resources Limited.

The government has also reached an agreement with the Oranto Petroleum Limited for Ngassa Block and the PSA is set for signing in three weeks’ time.

The new PSA now adds Armour Energy Ltd to the three upstream licensees in the country –Total E&P BV, Tullow Uganda Pty Ltd and CNOOC Uganda Ltd.

Amour’s Chief Executive, Roger Cressey, said the exploration and development of oil in Uganda is “a very exciting opportunity for us.”

The government is currently in final preparation for setting up various production and transportation infrastructure ahead of first oil production in 2020. So far, about 6.5 billion barrels of oil have been discovered, according to government officials.